Earnings Surprises Keep SunPower An Investor Favorite

By Harris
Roen

The stock market has been paying attention to SunPower (SPWR)
in a big way. At the end of May the stock hit an annual high of
23.76, a gain of 125% from where it was just a month earlier. That
price is quadruple levels it was trading at in the beginning of the
year.

Since May, the stock has seen about a 17% correction, and is trading
sideways in the 18 to 20 price range. Volume at these high price
levels have been impressive too—shares exchanging hands in the past
30 trading days exceeds that of the previous 64 trading days.

Investors have been impressed with the latest earnings report, and
the company
estimates that earnings per diluted share will turn positive
next quarter, beating analyst estimates. Despite this recent jump in
the stock price, is SPWR still a good investment?

SunPower is a small to medium sized California-based solar company
with about 5,000 employees and $2.5 billion in annual sales. This
vertically integrated solar company is involved in the manufacture,
installation and service of photovoltaics. SunPower delivers solar
to a huge array of customers around the globe, from rooftop
residential systems to commercial, government and utility-scale
power plant clients. SunPower claims to have the largest U.S. residential
and commercial installed base, with over 100,000 residential
systems installed.

A look at SunPower’s comparative financials paints a mixed picture
of the company’s future prospects. The chart above measures SPWR
against the average of 23 other solar companies in the same size
range (those with annual sales between $1 billion and $10 billion).

When comparing debt and sales growth, SPWR beats out the
competition. It posts numbers 50% above the other companies. It
measures poorly, though, on earnings, profits and return on equity.
Having said that, it should be noted that these three later measures
are all negative on average for solar companies in the group, it’s
just that SunPower’s numbers are more negative. So for example, the
current EPS for SunPower is -2.8, compared to an average for the
other solar companies of -1.3.

Solar installation as an investment theme is hot on analyst’s radar
these days, and it is largely due to this part of SunPower’s
business that the stock is getting so much attention. It is
important, then, to compare SPWR against the other big players in
solar installation.

I believe the main justification for investor interest in SunPower
is its history of positive earnings surprises—this is a metric where
SunPower shines. To illustrate, when earnings came in at $0.22/share
for the first quarter of 2013, it handily beat consensus analyst
estimates of $0.06/share. Similarly, earnings per share of
$0.18/share for the fourth quarter of 2012 exceeded the average
analyst estimate of $0.14/share. Once a trend like this is
established, professional investors take notice.

So while SunPower may not rise to the top of comparable companies,
it continues to be an investor favorite. As long as the company
continues to perform well in the ultra-competitive solar sector,
SunPower will remain one of the Roen
Financial Report’s top picks.

Disclosure

Individuals involved with the Roen Financial Report and Swiftwood
Press LLC do not own or control shares of any companies mentioned
in this article. It is possible that individuals may own or
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contained in the Mutual Funds or Exchange Traded Funds mentioned
in this article. Any advice and/or recommendations made in this
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